Don’t Claw Back the Clawback

Don’t Claw Back the Clawback

Saturday, September 9, 2000The St. John’s Telegram

Clawback justifiable part of EI system

By Peter Fenwick

Gerry Byrne is against the clawback. When the current member for Humber-St. Barbe-Baie Verte announced he was running in the upoming federal election he also announced his platform. He would run to re-establish health-care funding and to roll back three of the EI reforms of 1996.

One of the provisions he wants to see eliminated is the clawback, the provision that reduces, and sometimes actually eliminates, the employment insurance (EI) received by high-income Canadians. For a Liberal who champions the cause of his less-well-off constituents, it is a remarkable position to take.

Back in the mid-1990s Newfoundlanders Doug May and Alton Hollett wrote a devastating critique of the unemployment insurance (UI) system.

They showed that UI was a dismal failure when it came to redistributing wealth. Families with income as high as $80,000 a year were receiving UI, and were receiving a lot more than much poorer workers making the minimum wage.

When the federal government changed UI to employment insurance in 1996, two of the changes increased the fairness of the system. One, the clawback, was designed to reduce the benefits that highly paid workers received, while the other, the family supplement, was put in to increase the benefits to poor families forced to rely on EI.

The clawback was not a new provision. Prior to 1996, anyone making over $63,000 a year would lose 30 per cent of their benefits when they filed their income tax.

Threshold lowered

In the reforms, that threshold was dropped to $47,000. This meant that highly paid workers who were laid off would receive EI, but when they filed their income tax return, 30 per cent came off the top before ordinary taxes were then imposed.

However, that was not all. If a high-income earner were to become unemployed two years running, the threshold would drop to $39,000 and the clawback would jump to 50 per cent. If the worker were a well-paid hand on a shrimp boat, a well-paid logger, or other highly paid seasonal worker, and he drew EI every year for five years, he could have the whole works clawed back.

That’s the clawback. It is the provision that cuts EI for high-income seasonal workers making over $39,000 a year

Now, I have no problem with the clawback. It takes benefits from those who are making a good enough income to be able to survive without them.

Since the marginal income tax rate for anyone making over $39,000 is very high anyway, the loss due to the clawback is marginal at best. (If the clawback doesn’t take it, taxes will.)

However, the changes to the clawback in 1996 were not done in isolation. At the same time as the government took from the rich, relatively speaking, it also gave to the poor. It did it through a device call the family supplement.

Simply put, the family supplement increases the percentage of one’s weekly income for benefits from the 50 to 55 per cent that everyone gets, to a maximum of 80 per cent this year. For families to get the full family supplement, they have to have family income less than $20,000 a year, and have to be in receipt of the national child tax benefit.

Together, the two provisions actually worked well to take from the rich and give to the poor. Before the changes, highly paid seasonal workers who received EI for a half a year would get over $10,000 in EI. By contrast, minimum wage seasonal workers working the same length of time would get less than $2,600 in UI.

Under the two new provisions, the worker with $40,000 a year in income gets less EI, and no EI if he has drawn every year for five years, while the minimum wage seasonal worker gets a thousand dollars more.

And there are many more low-income workers. At last count about 15 per cent of all EI recipients receive the family supplement. Only a small number were subject to the clawback.

But even without the low-income family supplement, it is not right to allow highly paid seasonal workers to receive EI year after year when fully employed low-wage employees who never claim are paying the cost of the benefit.

A minimum wage clerk in a store making $10,000 a year should not have to augment the income of an engineer on a shrimp trawler making $100,000 a year.

Although the full effect of all the reforms is not yet apparent (that will take until 2002), the latest figures from the 1999 Employment Insurance Commission report suggest that the clawback is taking back only about a quarter the amount that is being put back into people’s pockets by the family supplement.

Makes little sense

This is why Byrne’s opposition to the clawback makes so little sense. True seasonal workers whose annual income is $40,000 a year will eventually lose all EI benefits, but when all that, and more, is given to much poorer workers, I find it hard to object.

By the way, Byrne is not alone in his opposition to the clawback. Virtually all the other MPs in Newfoundland and all the members of the House of Assembly appear to want the clawback rescinded, as well.

And since rolling back these EI reforms is about to become the Liberal platform for the next election, it is important voters realize what opposition to the clawback actually is: taking from the poor, or relatively poor, to give EI to the rich.